Executive Summary

Q1 FY2025 delivered a clean beat on the top and bottom line with net sales up 2% to $3.46B and diluted EPS at $0.51, while operating margin expanded 140 bps to 7.5%; however, management flagged tariff headwinds (net $100–$150M) that overshadowed the print and drove a sharp stock selloff after-hours.
LSEG/Street consensus (not S&P Global) was EPS $0.45 and revenue $3.42B; GPS posted $0.51 and $3.46B, respectively, as gross margin reached 41.8% (+60 bps YoY) and SG&A leveraged 90 bps.
FY25 outlook maintained: net sales +1% to +2%, operating income growth +8% to +10% (underlying, excluding $100–$150M tariff impact), capex ~$600M; Q2 guide: sales ~flat YoY, gross margin similar to Q1, slight OpEx leverage.
Stock reaction catalyst: tariff impact commentary (mitigations underway, no “meaningful” price increases planned) led shares to fall >15% after-hours despite the beat.

What Went Well and What Went Wrong

What Went Well

Margin execution: Gross margin 41.8% (+60 bps YoY) on rent/occupancy/depreciation leverage (+60 bps) and continued operational discipline; operating margin 7.5% (+140 bps YoY).
Brand momentum: Old Navy (+3% comps) and Gap (+5% comps) continued to gain market share; CEO: “We delivered strong first quarter results, exceeding financial expectations…”
Digital KPI: Online sales +6% YoY, reaching 39% of total net sales, underpinning mix and margin support.

What Went Wrong

Tariffs: Company expects a net $100–$150M hit from current tariffs in FY25 (mitigations in place), a key overhang that pressured the stock.
Athleta softness: Brand comps declined 8% in Q1 as the reset continues, tempering portfolio growth breadth.
Sequential seasonal normalization: Revenue and EPS down QoQ versus a strong Q4 holiday base, highlighting seasonal sensitivity despite improved fundamentals.

Financial Results

Consolidated P&L snapshot (oldest → newest)

Metric	Q3 FY2024	Q4 FY2024	Q1 FY2025
Revenue ($B)	$3.80	$4.15	$3.463
Diluted EPS ($)	$0.72	$0.54	$0.51
Gross Margin (%)	42.7%	N/A	41.8%
Operating Income ($M)	355	N/A	260
Operating Margin (%)	9.3%	N/A	7.5%
Net Income ($M)	274	206	193

Notes: Q3 FY2024 based on company release and third-party summaries; Q4 FY2024 revenue/EPS per CNBC; Q1 FY2025 per company. Where N/A, the quarter metric was not disclosed in cited sources.

Q1 FY2025 vs consensus (LSEG via CNBC; S&P Global unavailable via tool)

Metric	Consensus	Actual	Surprise
Revenue ($B)	$3.42	$3.463	+$0.043B (beat)
Diluted EPS ($)	$0.45	$0.51	+$0.06 (beat)

S&P Global consensus was not retrievable via our S&P tool for GPS during this session; thus we cite LSEG reported by CNBC.

Brand/segment and KPIs (Q1 FY2025)

Item	Q1 FY2025
Old Navy net sales	$2.0B
Gap net sales	$724M
Banana Republic net sales	$428M
Brand comps (Old Navy / Gap / Banana / Athleta / Total)	+3% / +5% / 0% / -8% / +2%
Online sales	+6% YoY; 39% of net sales
Gross margin	41.8% (+60 bps YoY)
SG&A	$1.188B; leveraged 90 bps YoY

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Net sales	FY2025	—	+1% to +2%	Maintained vs Q4 framework
Operating income growth (underlying)	FY2025	—	+8% to +10% (excludes $100–$150M tariff net impact)	Clarified underlying; tariff impact separated
Net interest income	FY2025	—	~+$15M	Maintained
Effective tax rate	FY2025	—	~26%	Maintained
Capital expenditures	FY2025	—	~$600M	Maintained
Net store closures	FY2025	—	~35	Maintained
Net sales	Q2 FY2025	—	~Flat YoY	New quarter guide
Gross margin	Q2 FY2025	—	Similar to Q1’25	New quarter guide
OpEx (% of sales)	Q2 FY2025	—	Slight leverage YoY	New quarter guide
Dividend	Q2 FY2025	$0.165 declared in Q1 PR	$0.165 per share (Q2 declared)	Maintained
Tariffs (impact)	FY2025	Embedded in prior FY25 talk	Net $100–$150M expected; mitigations in place	New specificity

Earnings Call Themes & Trends

Topic	Q3 FY2024 (prior-2)	Q4 FY2024 (prior-1)	Q1 FY2025 (current)	Trend
AI/Technology	Limited public detail; focus on execution, digital mix (40% online)	Emphasis on platform strength and operational capabilities	Explicitly highlighted investments in inventory mgmt, digital product creation, AI, e-commerce	Increasing focus
Supply chain/tariffs	Normalization; weather created demand variances	Minimal expected margin impact from tariffs embedded in outlook	Tariff net impact quantified at $100–$150M; mitigation (e.g., sourcing shifts)	Risk rising but mitigated
Product performance	Old Navy, Gap steady; Athleta improved in Q3	Holiday strength; portfolio breadth; highest GM in >20 yrs for FY24	Old Navy active/denim; Gap women’s momentum; Athleta softness (-8% comps)	Mixed: ON/Gap strong, Athleta lagging
Regional/macro	Weather headwinds noted	Balanced outlook given dynamic backdrop	“Optimistic yet realistic,” monitoring consumer/trade; controlling controllables	Stable vigilance

Management Commentary

“We delivered what we said we were going to, exceeding expectations across key financial metrics… We expanded operating margin 140 basis points versus last year. EPS was $0.51… cash approximately $2.2 billion.” — CEO Richard Dickson (prepared remarks)
“Net sales and comparable sales both up 2%… gross margin up 60 bps and SG&A leveraged 90 bps… operating margin 7.5%… EPS +24% to $0.51.” — CFO Katrina O’Connell (prepared remarks)
“Old Navy continued to gain share in active as the #5 player… Studio Smooth collection outperformed… Gap’s 6th consecutive quarter of positive comps with continued momentum in women’s.” — CEO (prepared remarks)

Q&A Highlights

Demand/pricing strategy amid tariffs: Management reiterated belief that strong brands can win without “meaningful” price increases; mitigation includes supply-chain shifts (e.g., more U.S. cotton) and cost actions.
Gap brand momentum/new customer acquisition: Discussion focused on consistent execution and brand reinvigoration; analysts probed sustainability of comps and customer acquisition drivers.
FY25 operating income growth ex-tariffs: Clarified underlying OI growth of +8–10% on +1–2% sales, with tariff net impact of $100–$150M excluded from underlying metric.

Estimates Context

S&P Global consensus data was unavailable via our S&P tool for GPS in this session; therefore we cite LSEG (via CNBC): Q1 FY2025 revenue $3.42B and EPS $0.45 vs actual $3.463B and $0.51 (both beats).
Seeking Alpha also highlighted “EPS beat by $0.05” and revenue beat vs expectations.

Key Takeaways for Investors

Execution remains solid: Positive comps, broad-based margin expansion, and ongoing share gains at Old Navy and Gap support the turnaround narrative despite macro/trade volatility.
Tariffs are the swing factor: A quantifiable net headwind ($100–$150M) is now the main debate driver; mitigation plans aim to protect price points and brand momentum. Near-term stock moves likely track tariff headlines.
Guidance credible but conservative: FY25 +1–2% sales and underlying OI +8–10% with Q2 gross margin similar to Q1 keeps near-term setup reasonable; watch execution vs tariff offset timeline.
Brand mix skew is favorable: Old Navy’s scale and Gap brand’s reinvigoration provide growth ballast while Athleta remains in reset; monitor Athleta quarterly cadence.
Digital penetration supports margins: Online at 39% with +6% growth gives mix benefits and flexibility on promotions if trade pressures persist.
Trading lens: Despite fundamental beats, tariff narrative can dominate near-term price action; potential upside if mitigation proves faster-than-expected or trade backdrop improves.
Medium-term thesis: If margin discipline endures and brand momentum sustains, EPS power expands as AI/digital and platform investment productivity compounds; tariff risk is manageable but headline-sensitive.

Additional primary sources consulted for prior-quarter trends: Q4 FY2024 results and commentary (holiday strength, highest GM in >20 years) and Q3 FY2024 (raised FY24 outlook, 42.7% GM, 9.3% OM).

GAP INC (GPS)·Q1 2025 Earnings Summary